Lennar’s Earnings More Than Quadruple on New-Home Demand

Builders broke ground on new single-family homes at an annual pace of 535,000 in August, the highest rate since April 2010, when buyers rushed to take advantage of federal tax credits designed to stimulate the market, the Commerce Department reported Sept. 19. Photographer: David Paul Morris/Bloomberg

Sept. 24 (Bloomberg) -- Lennar Corp., the third-largest
U.S. homebuilder by revenue, said its quarterly profit more than
quadrupled as demand for new houses climbed and a real estate
recovery gained traction.

Net income for the third quarter ended Aug. 31 rose to
$87.1 million, or 40 cents a share, from $20.7 million, or 11
cents, a year earlier, the Miami-based company said today in a
statement. The average estimate of 19 analysts in a Bloomberg
survey was for earnings of 28 cents a share.

Purchases of new homes in the U.S. have begun to rebound as
low mortgage rates help lure buyers amid a tight supply of
existing properties. Builders broke ground on new single-family
homes at an annual pace of 535,000 in August, the highest rate
since April 2010, when buyers rushed to take advantage of
federal tax credits designed to stimulate the market, the
Commerce Department reported Sept. 19.

“The homebuilding business is beginning to revert to
normal and that’s positive for the U.S. economy in general,
which is in turn good for a sustained recovery in the housing
market,” Lennar Chief Executive Officer Stuart Miller said on a
conference call today. “Overall demand has been improving and
we’ve seen a consistent sales pace at improving prices.”

The shares fell 1.5 percent to $36.96 at the close in New
York. The Standard & Poor’s Supercomposite Homebuilding Index of
11 companies dropped 1.3 percent as global stocks sank on
concern that a global economic slowdown may deepen.

Stocks Gain

The index is up 84 percent this year and reached its
highest level since 2007 last week. Lennar has gained 88 percent
this year while PulteGroup Inc., the largest U.S. homebuilder by
revenue, has jumped 166 percent to lead gains in the industry.

Lennar’s shares are priced at a multiple of two times book
value, comparable to a time when the housing market was
stronger, Will Randow, an analyst with Citigroup Inc. in New
York, said in a note today.

The “math still doesn’t work,” wrote Randow, who expected
earnings of 31 cents. He has a “3” rating on Lennar, the
equivalent of a sell recommendation. The shares “need much more
upside to justify even more robust valuation.”

Lennar’s third-quarter revenue rose to $1.1 billion from
$820.2 million a year earlier. New orders climbed 44 percent to
4,198 homes. Contract backlog, an indication of future sales,
increased 79 percent to 4,513 homes. The average sales price of
homes delivered jumped to $258,000 from $247,000 a year earlier.

Lennar’s gross margin on home sales, a measure of
profitability, rose 2.1 percentage points to 23.2 percent on
higher selling prices and lower incentives to buyers, even as
costs for materials and labor increased.

California, Florida

Pockets of California, Florida and the eastern seaboard
were among markets that showed strength as more move-up buyers
bought homes and as some consumers with damaged credit from
foreclosures came “out of the penalty box,” Miller said.

“The lower end” remains “a little bit more
constrained,” he said. “But there is a recovery going on in a
broad-based play across the country. It’s just very pocketed and
very locally focused.”

Other builders have been recording improved results as
housing recovers. KB Home, based in Los Angeles, on Sept. 21
reported an unexpected profit for its fiscal third quarter as
home sales increased, buoyed by growth in the West Coast. The
shares surged 16 percent, the most since 2008.

U.S purchases of new houses rose to a two-year high in
August, according to economists surveyed by Bloomberg. The
Commerce Department probably will report this week that sales
climbed to a 380,000 annual pace from a 372,000 rate in July,
based on the median of 60 estimates.